Natural gas futures forged higher on Tuesday, recovering much of the ground lost a day earlier, as markets shifted attention to European supply woes and expectations for robust demand for U.S. exports of liquefied natural gas (LNG) through winter.

EIA gas storage

At A Glance:

  • BREAKING: U.S. EIA reports withdrawal of 21 Bcf for week ending Nov. 19
  • European woes fuel LNG demand expectations
  • Cash drops in Northeast

The December Nymex contract climbed 17.8 cents day/day and settled at $4.967/MMBtu. January gained 17.4 cents to $5.035. A day earlier, the prompt month dropped 27.6 cents amid domestic weather demand concerns.

NGI’s Spot Gas National Avg., however, shed 42.5 cents to $4.830 as prices retreated in the volatile Northeast.

LNG feed gas volumes hovered close to 2021 highs above 11 Bcf Tuesday, as U.S. export destinations in Asia and especially Europe called for added supplies for the winter months.

Gas prices in Europe, where utilities are light on storage following a harsh year of weather, climbed anew on Tuesday after the United States imposed new sanctions on Russia’s recently completed but still inactive Nord Stream 2 (NS2) pipeline. The sanctions were broadly viewed as symbolic, given that construction of the pipeline was finished earlier this fall.

Because NS2 could deliver much-needed gas to Europe as soon as 2022, any indications of disruption tend to stir supply worries and, by extension, kindle expectations for continued strong demand for U.S. LNG.

“The natural gas markets have been seeking any bullish news/trends to give reason to spike prices higher, and today bulls were given new reasons on U.S. sanctions,” NatGasWeather said.

Commissioning NS2 had already been delayed by regulatory challenges in Germany. “Losing the prospect of more Russian gas soon via Nord Stream 2 is a bullish development for gas traders, who are now adding premiums to European prices, removing the possibility of a supply relief from the east from the equation,” Rystad Energy analyst Carlos Torres Diaz said.

“Nord Stream 2 is the pipeline that can change the supply game in Europe and tip the scale, so delays in its utilization mean the current tight gas market conditions will persist through the winter,” Diaz said. “Taking this supply potential out of the equation suggests Europe will continue to rely on LNG over the winter to provide flexibility, creating more buy-side competition for international cargoes.”

Domestic Developments

Meanwhile, domestic weather-driven demand remained a bearish headwind for natural gas prices.

Model runs on Tuesday led Bespoke Weather Services to add gas-weighted degree days (GWDD) to its updated 15-day projections versus previous expectations. However, the outlook for strong heating demand in early December remained dubious.

The “main item of note” overnight was a “more drastic colder change” from the European model, “which added about a dozen GWDD compared to its outlook” from Monday afternoon, Bespoke said. “While historically this has been the most skillful model, it seems to be struggling the most in this pattern, actually being the model that has been more incorrect when it comes to modeled colder threats.”

Even with the colder change, the European model continued to advertise warmer than normal conditions for the 11- to 15-day period, Bespoke said.

“We feel it is at risk of reverting closer” to the American modeling in subsequent runs, “as we do still favor a warmer lean into early December,” the firm added.

On the storage front, NGI’s model predicted a 26 Bcf withdrawal from inventories with Wednesday’s Energy Information Administration (EIA) storage report. It would mark the season’s first net pull on Lower 48 inventories.

A Reuters poll found estimates that ranged from withdrawals of 16 Bcf to 31 Bcf, with a median of 22 Bcf. Early results of a Bloomberg survey ranged from pulls of 22 Bcf to 26 Bcf. It found a median of 24 Bcf. The Wall Street Journal’s poll found withdrawal estimates of 11 Bcf to 25 Bcf, with an average of 20 Bcf.

The EIA report, scheduled for an early release ahead of the Thanksgiving holiday, covers changes to Lower 48 gas stocks during the week ended Nov. 19. Last year, EIA recorded an 11 Bcf pull for the similar week, and the five-year average is a 44 Bcf withdrawal.

Spot Prices Sink

After surging on Monday ahead of a bout of wintry weather, cash prices in the Northeast gave back those gains as freezing conditions in the region looked to lift. Highs in Boston were projected to reach the mid-50s by Thanksgiving Day.

Algonquin Citygate plunged $4.080 day/day to average $5.560 and Tenn Zone 6 200L dropped $4.345 to $5.770.

Most of the rest of the country, meanwhile, was expected to be “mild to nice with highs of 50s to 70s, besides the cool and wet Northwest” through the holiday, NatGasWeather said.

However, the firm added, “a fresh cold shot will track into the Midwest and across the East Friday and Saturday,” delivering lows in the teens to 30s “for a return to stronger national demand.”

Spot prices across much of the central part of the country edged upward Tuesday in advance of that weather system.

Chicago Citygate climbed 9.0 cents to $4.695, while El Paso Permian gained 22.0 cents to $4.455 and OGT advanced 9.5 cents to $4.265.

Looking ahead to the first week of December, NatGasWeather said systems with rain, snow and chilly highs of 30s-40s would move across the northern United States. Still, the western, central and southern regions of the country “will be much warmer than normal, with highs of 50s-70s for light demand.”